Green taxes

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Green taxes were originally introduced with the aim of discouraging people from damaging the environment by making them pay for using natural resources. Taxes were imposed on activities such as burning fossil fuels in power stations because it caused acid rain; on motor fuel to encourage people to use more energy-efficient cars or to use them less, or both; dumping of waste in landfill sites to encourage recycling and alternative ways of dealing with waste etc.

But today the scope of green taxes have been widened to encourage not just environmentally sustainable development but also better economic performance, more jobs and greater economic justice within and between nations.


Why should I be aware of this?

Green taxes would make prices reflect true costs. Currently too low a value is placed on non-renewable natural resources and completely ignores external costs – to the air, the water, the soil, to future generations, to workers’ health. Green taxes will be beneficial from the points of view of the society, environment and the economy as only those whose actions are non-green will be taxed.

How does this affect me?

Activities which go against the environment cause a loss of another's welfare and the loss of that welfare is uncompensated. The idea of green taxes is to remove the hidden costs by introducing the specific tax to pass on the benefits to those who are affected. This happens because through green taxes, the cost of activities or products that damage the environment is increased and the cost of activities or products that people want to encourage for environmental reasons is decreased.

All about green taxes

Green taxes are imposed to encourage companies to use recycled waste and eco-friendly methods to reduce the emission of CO2 in the atmosphere. Green taxes, unlike other taxes are imposed only on those whose actions harm the atmosphere. It is aimed at making companies use less of the natural resources and reduce pollution levels in the air. Benefits of green taxes are:

Reflects real cost

Market prices for products or activities often do not reflect the environmental costs to society. Green taxes are a good market-based environmental approach as they help reflect real costs. Once green taxes are imposed, the prices will accurately reflect the real cost of products.

Help influence behavior

Behavior of consumers are bound to change when they find that there are additional costs to be paid on environmentally unsafe products. Consumers are then faced with the choice of either changing their behavior or paying more. Businesses that pollute less also may have to pay large amounts in taxes.

Can bring in new technology

By taxing old technology the government forces entrepreneurs to develop new technology. And if there are tax incentives on new technology, consumers get the added advantage of costs too.

90 degrees

A study carried out by KPMG’s Tax Business School ® in the U.K quotes figures from the Organisation for Economic Co-operation and Development (OECD) which show that in many economies environmental taxes as a proportion of Gross Domestic Product (GDP) have fallen in recent years. OECD figures show that between 1996 and 2005 (the last year for which figures are available) the proportion of GDP accounted for by environmental taxes across 29 of the world’s largest economies has fallen by an average of 0.2 percent.

Governments in many large economies may be turning away from taxation as a tool to force environmental change, in favor of a range of more closely targeted green measures.


  • Eco-taxes
  • Are green taxes enough for reducing carbon emissions?
  • More green taxes may not be best route to environmental protection